Unifi switching to full-ownership mode in China

Greensboro, N.C. -- Polyester and nylon textured yarn producer Unifi Inc. will exit its China joint venture in favor of starting up a wholly owned subsidiary there, the company said today as it reported much stronger financial results for the quarter and year.

By the second quarter of fiscal 2009, Unifi plans to sell back its 50% share in Sinopec Yizheng Chemical Fiber Co. to its partner, and to launch Unifi Textiles Suzhou Co., Ltd. (UTSC). The new company will develop, sell and service premium value-added (PVA) yarns for customers in the region. Based in Suzhou, China, UTSC is initially expected to purchase the branded PVA inventory from Unifi’s current joint venture partner.

Bill Jasper, president and ceo of Unifi, said the new China entity is expected “to break a three-year string of quarterly losses” and profitably grow.

Overall, Unifi made progress in heading toward profitability. The company reported a net loss of $16.2 million for the fiscal year ended June 29 – a sharp improvement from the $115.8 million loss last year. The results stemmed both from supply chain improvement and from driving sales up 3.3% to $713.3 million from $690.3 million one year ago.

Much of the growth, Jasper said, resulted from the launch and expansion of the Repreve 100% recycled yarn developed by Unifi.

Unifi actually reported a modest profit in the fourth quarter, achieving earnings of $771,000 compared to the loss of $74.2 million in the year-ago quarter.

Jasper cautioned that material costs are rising rapidly while customers of its yarns continue to face mixed retail results in apparel and the very sluggish trend in home goods. However, Unifi is determined to focus on the value-added sector in both the U.S. and China; Jasper noted that the new plan for China is in part a move to get out of the commodity-based joint venture and accelerate expansion in the value-added sector.

The existing joint venture has volume of about $130 million, said Unifi cfo Ron Smith, who projected that the new company will start with sales of about $20 million and be profitable very quickly.